[quote=ucodegen][quote=Coronita]
So long as you have any IRA account including a rollover IRA, you won’t be able to do a backdoor Roth IRA. And you want to do this before the government decides to take away the ability to do Backdoor Roth IRA
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That is not my understanding. Checked around, and it looks like you can do the Backdoor Roth when you already have IRAs and Rollover IRAs. You can also do a backdoor Roth in steps. There is no limit on the number of backdoor conversions you do, however there must be a 12 month period between any Backdoor rollover. The tax rules are the same whether you do a Backdoor Roth from IRA accounts or 401k accounts, form 8606 applies. Taxes are required to be paid on any Backdoor Roth conversion because you are converting pre-tax to after-tax dollars. There is an interesting ‘Backdoor Roth’ option, if your employer offers it. If they allow post tax contributions to the 401k, you can put up to $40,500 of post tax dollars in 2022 into the 401k and then roll it over into a Roth. From what I can see, it gets around the contributions income limit on Roth IRA/401k contributions. Its being called a ‘Mega Backdoor Roth’.
As for the original question as to where to put the $12k, I would not put it in the hands of ‘advisors’. Several years back, Warren Buffet put out a challenge to hedge fund money managers that he could beat their returns using just index funds using a buy and hold strategy. While some of the money managers were initially ahead, the end result in about 8 years was that Warren Buffet had convincingly won. https://www.investopedia.com/articles/investing/030916/buffetts-bet-hedge-funds-year-eight-brka-brkb.asp%5B/quote%5D
That doesn’t sound correct…
Google “Backdoor IRA Pro-Rata Rule”
This article does a pretty decent job explaining it
There is an sample tax calculation provided, reposted here:.
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Let’s say you have $100,000 in a Traditional IRA, $7,000 of which came from non-deductible contributions. Because you’ve already paid taxes on $7,000, the IRS will not require you to pay taxes on that amount twice. Some retirement savers believe that, since they’ve already paid taxes on that amount, they can then convert $7,000 to a Roth IRA without paying taxes again. By law, though, you cannot dictate that your Roth conversion will only use those after-tax funds.
If you’d like to convert $7,000 to a Roth IRA, you will need to calculate how much of your IRA funds are actually taxable. The IRS requires you to include the value of all your non-Roth IRAs as the basis. The formula for tax purposes looks like this:
(non-deductible amount) / (total of all non-Roth IRA balances) = non-taxable percentage
(amount to be converted to Roth IRA) x (non-taxable percentage) = amount of after-tax funds converted to Roth IRA
In other words, 7% of the $100,000 is non-taxable since you already paid taxes on those $7,000. But if you want to convert $7,000 to a Roth IRA, in reality, the converted amount comes from 93% pre-tax funds and only 7% after-tax funds. You’ll have to pay taxes on 93%, or $6,510, of the converted amount. By the same token, that means $6,510 of the original non-deductible $7,000 is still in the Traditional IRA, and any future after-tax contributions to your non-Roth IRAs will further complicate your Pro-Rata percentage, making future withdrawals messier than you might assume.
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